Dr. Mike Walden, long-time economist at North Carolina State University, is a frequent contributor to WRAL TechWire. WRAL TechWire asked Walden for his insight into the current jobs situation affecting North Carolina and the U.S.: Why so many jobs going unfilled even as the country recovers from the pandemic? This column is part of our “Jobs Conundrum” special report.
RALEIGH – Last week’s national job report showed under 300,000 net new jobs added in the economy in April. While this is a positive sign about the economic recovery, the report was greeted with disappointment because forecasts were for a net gain of near 1 million jobs. This disappointment has turned into controversy over a debate about ‘why’ the job shortfall.
Of course, the good news is jobs were created. The April report continues a string of mostly positive job reports since last May, signaling that the Covid-19 recession is being rolled back and the economy is nearing its pre-pandemic levels. While the March report was much stronger, the April report is not much different than reports late last year and earlier this year.
Dr. Mike Walden
Then why has there been so much discussion about the April numbers? The reason is there’s been a rush to explain why the numbers were so much below expectations. Two broad explanations have been offered.
One explanation focuses on COVID-related causes. While many people who lost jobs during the pandemic have been actively seeking jobs, there are pandemic-related reasons why some jobless folks have stayed on the sidelines. Perhaps they’re still fearful about Covid and are therefore refraining from going on job interviews. Others may have had Covid – and are recovering – or are taking care of family members who have had Covid. Still other jobless individuals may have children home from school, and a jobless parent decides it’s more important to supervise their kids than look for work.
The other explanation, while not necessarily discounting the COVID-related reasons, focuses on a potential financial disincentive to return to work. The disincentive is the federal supplement to state-provided unemployment compensation. With the federal supplement at $300 weekly (it was as high as $600 weekly in 2020), simple math shows that a low-wage worker can now often earn more from unemployment payments than by working. Hence, this explanation points the finger at government policy for the slow gain in jobs.
https://wraltechwire.com/2021/05/13/ncs-employment-conondrum-hiring-soars-new-companies-coming-but-big-jobs-deficit-remains/
Discounters of the disincentive explanation argue there is little empirical support for the assertion that levels of government assistance to unemployed workers discourage them from looking for work. Until recently, this was accurate. Previous studies found little linkage between jobless benefits and searching for work.
But in March a new study was published using data from the pandemic. The study was published by the prestigious National Bureau of Economic Research, a non-profit, non-partisan economic think tank begun in 1920. The study found a tie between job search and the level of jobless benefits. Specifically, the results show a 10% increase in jobless payments is associated with a 4% decline in job applications.
The findings of the NBER study make logical economic sense. Economic science implies people will often do what benefits them the most. Choosing to forego job search because jobless payments are less than payments earned from working is a practical choice. It doesn’t mean people making this choice are lazy or unmotivated; it just means it’s the best result for them at the time.
So, the correct answer to why more people aren’t looking for work is, “all of the above.” COVID-related concerns explain some of the situation, but so do financial disincentives to look for work.
My prediction is that both the COVID and financial explanations for why some jobless people aren’t applying for work will dissipate over time. With more vaccinations, reduced COVID cases, and schools opening, jobless workers facing these factors will increasingly move back into the labor force. Also, the federal jobless benefit supplements are set to expire in September. In the meantime, we’re hearing stories of employers offering higher pay and benefits to entice more applicants. As the need for workers grows, these offers will pay off.
Still, I do foresee a long-run challenge to the labor market developing from today’s workplace. Compared to the pre-pandemic economy, more employers in the post-pandemic world will see disadvantages to hiring people to perform tasks. People can get sick, they may be needed to care for family members who become sick, and they may be supported by government programs that – at least temporarily – motivate them to stay out of the workforce. I worry these concerns will motivate more employers to consider alternatives to people – like technology and machinery – to perform jobs. We need to be thinking now about how to address this possibility.
